Working Paper

Labor productivity and job-market flows: trends, cycles, and correlations

Abstract: I derive measures of U.S. job-separation and job-matching rates from aggregate Current Population Survey data. Using an unrestricted unobserved-components approach, I decompose these series into trends and cycles and compare the results with the trend and cyclical behavior of labor-productivity growth. Both transitory and permanent shocks to productivity are strongly positively correlated with fluctuations in the rate of job matching and negatively correlated with cyclical fluctuations in separation rates. Productivity growth thereby accounts for about a third of the overall variation in the unemployment rate. However, it displays only weak correlation with trend separation rates. Because trend movements in unemployment are dominated by permanent changes in separation rates, productivity shocks alone cannot account for most of the movement in the natural rate of unemployment over time.

Keywords: Labor productivity; Employment (Economic theory);

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Supervisory Policy Analysis Working Papers

Publication Date: 2005

Number: 2005-04